RAM Ratings Reaffirms AA2 Rating of UEM's Sukuk

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1. IB Press Release Service Published on IslamicBanker .com Publications: https://www.islamicmarkets.com/publications RAM Ratings reaffirms AA2 rating of UEM's sukuk 31 January 2017 RAM Ratings has reaffirmed the AA2/stable rating of UEM Group Berhad's (UEM or the Group) IMTN Programme of up to RM2.2 billion (2012/2042), issued through funding vehicle, United Growth Berhad (United Growth). The reaffirmation of the rating takes into account the Group's strong business diversity and the sturdy positions of its key subsidiaries, and incorporates our expectations of support from the Government in times of need. UEM has an important role by virtue of its stakes in strategic local tolled roads and ownership of large tracts of land in Iskandar Puteri a component of the Government's economic corridor, Iskandar Malaysia. Additionally, the Group has a very strong relationship with its parent, Khazanah Nasional Berhad the Government's investment-holding arm. The likelihood of government support for the Group in times of need is viewed as moderately high, as defined under RAM's methodology for rating government-linked entities. The rating also reflects the Group's diversified business profile, with core segments comprising the expressways, engineering and construction, township and property development, and asset and facility management (AFM). Stable earnings from its expressways segment had cushioned the construction segment's losses and poorer property earnings in fiscal 2015, and will continue to provide a buffer against cyclical challenges. Further, UEM's key subsidiaries have strong business profiles, underscored by concessions for strategically aligned local highways or their leading positions in the property, AFM and cement industries. The rating is, however, moderated by the Group's weak financial profile. UEM's profit in 1H FY Dec 2016 reduced considerably (-85% y-o-y), weighed down by expected losses stemming from its Indonesian highway asset (which commenced operations in June 2015) as well as the weaker earnings of its construction, AFM, property and cement segments. The Group's debts had grown to RM8.02 billion as at end-June 2016 (about 44% of the debts are concession related), albeit moderated by a large cash pile of about RM3 billion. Although the Group's profit will be lifted by dividends received from its toll-road joint venture PLUS Malaysia Berhad (PMB) in 2H, full-year profit is likely to be substantially lower y-o-y, while recovery could be slow in 2017 given challenges within the property and cement sectors. The Group's funds from operations debt cover, which dipped below 0.1 times in 1H FY Dec 2016, could stay at this level for FY Dec 2016 and FY Dec 2017 as debt is likely to continue to rise to fund an acquisition under the AFM segment. Operating cashflow debt coverage could also hover around the same level before a potential recovery in 2018. The rating is also moderated by the patchy track record of UEM's construction segment, its heavy concentration in Iskandar Puteri, and regulatory risks relating to its toll-road assets. Although the Group's toll roads under Projek Lebuhraya Usahasama Berhad (PLUS)
2. IB Press Release Service Published on IslamicBanker .com Publications: https://www.islamicmarkets.com/publications subsidiary of PMB had been due for a rate hike in January 2016, the Government has decided that no rate increases will be implemented for the Group's expressways in 2016. In the meantime, the heavy debt load residing at PLUS may affect future distributions to the Group especially when principal repayment on the former's debts begins in January 2017. United Growth was set up to raise the IMTN, and is wholly owned by UEM. Through an irrevocable and unconditional purchase undertaking, the sukuk holders are effectively exposed to UEM's credit risk, as reflected in the rating of the IMTN. Analytical contact Karin Koh, CFA (603) 7628 1174 karin@ram.com.my Media contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings' credit-related analyses and commentaries, where relevant. Published by RAM Rating Services Berhad Copyright 2017 by RAM Rating Services Berhad
3. IB Press Release Service Published on IslamicBanker .com Publications: https://www.islamicmarkets.com/publications Organisation Name: RAM Rating Services Berhad News Type: Press Release Source: Government of Malaysia Media Contacts Padthma Subbiah (603) 7628 1162 padthma@ram.com.my